President Donald Trump has announced a 25% tariff on auto imports, a move the White House says will boost domestic manufacturing. However, this could also put a financial strain on automakers who rely on global supply chains.
“This will continue to spur growth,” Trump told reporters, confirming the tariff would be 25%.
The tariffs, expected to generate $100 billion annually in revenue, could complicate matters, as even U.S. automakers source components globally. Starting in April, the new tariffs could raise costs for automakers and result in lower sales. But Trump believes the tariffs will encourage more factories to open in the U.S., ending what he calls a “ridiculous” supply chain involving auto parts and finished vehicles from across the U.S., Canada, and Mexico.
“This is permanent,” Trump declared, emphasizing his commitment to the new policy.
The announcement led to a drop in General Motors’ stock by about 3%, while Ford saw a slight increase. Shares in Stellantis, the parent company of Jeep and Chrysler, fell nearly 3.6%.
Trump has long championed tariffs on auto imports as a central policy of his presidency, arguing they would help relocate production to the U.S. and reduce the budget deficit. But automakers, both domestic and foreign, have built global plants to serve worldwide markets, and it could take years for new factories to come online.
Economist Mary Lovely from the Peterson Institute for International Economics warned that the tariffs would lead to higher vehicle prices and fewer options for consumers. “These kinds of taxes fall more heavily on the middle and working class,” she said, noting that more households might be forced to hold onto older cars due to rising prices.
With the tariffs starting in April, the average price of an imported vehicle could jump by $12,500, potentially driving inflation higher. This comes at a time when Trump’s supporters hope his return to the White House will lead to lower prices.
International leaders quickly criticized the move, signaling the possibility of a broader trade conflict. Canadian Prime Minister Mark Carney called it “a very direct attack” and vowed to defend Canadian workers, businesses, and the country itself. In Brussels, European Commission President Ursula von der Leyen expressed regret over the U.S. decision, stating that tariffs are “bad for businesses, worse for consumers” and promising to protect European consumers and businesses.
Trump also proposed a tax break for car buyers, allowing them to deduct interest on auto loans for vehicles made in America, which could offset some of the revenue from the new tariffs.
The tariffs will apply to both finished vehicles and auto parts, and are based on a 2019 Commerce Department investigation into national security concerns. Under the USMCA trade agreement with Canada and Mexico, the 25% tariffs will only apply to non-U.S. content.
The White House is confident that U.S. automakers have enough capacity to ramp up production domestically and avoid the tariffs. The administration also notes that automakers have been aware of the impending tariffs since Trump’s campaign.
These auto tariffs are part of a larger strategy by Trump to reshape global trade, with plans to impose “reciprocal” taxes on April 2, matching the tariffs and sales taxes of other countries. He’s already placed a 20% import tax on goods from China and 25% tariffs on steel and aluminum imports. Trump has also hinted at tariffs on computer chips, pharmaceutical drugs, lumber, and copper.
While these policies aim to protect U.S. industries and narrow the budget deficit, they risk escalating global trade tensions, which could hurt global economic growth and raise prices for businesses and consumers. Retaliatory tariffs, like the European Union’s proposed 50% tax on U.S. spirits, could further intensify the trade war.
Trump has also suggested a 25% tariff on oil imports from Venezuela, despite the U.S. also importing oil from there.
Despite the concerns, Trump’s aides argue that the tariffs on Canada and Mexico are part of efforts to combat illegal immigration and drug smuggling. They also hope to use the revenue to reduce the budget deficit and bolster the U.S. economy.
Trump pointed to Hyundai’s $5.8 billion steel plant in Louisiana as evidence that tariffs are bringing manufacturing jobs back to the U.S.
In total, over 1 million people are employed in the U.S. motor vehicle and parts manufacturing sector, though that’s down by about 320,000 from 2000. The U.S. imported nearly 8 million cars and trucks last year, worth $244 billion, with Mexico, Japan, and South Korea being the top suppliers. Auto parts imports totaled more than $197 billion, led by Mexico, Canada, and China.
